Presentation: Understanding potential dilution

Raise money… and know what you’re signing up for

If you’re a founder of an early-stage startup, you may have raised money via convertible instruments (CIs) without knowing fully how they could dilute your stake in the company. But as a business builder, equity is your resource. So, starting from the very first deal, it pays (literally) to know what you own and what you are promising your investors.

This presentation, which I delivered in April at Techstars in Austin, is your guide to how potential dilution impacts ownership during early rounds of funding.

Here’s a video of the presentation, which runs just under 10 minutes. You can also download a PDF version of the presentation.

Part of the challenge for founders comes from the widespread use of CIs in the early rounds. While CIs can be a great tool for raising money quickly, they also hold the potential to surprise founders — either in a subsequent round of funding or when an existing investor sells their stake — with how much equity they’ve granted to investors.

The presentation covers convertible notes and SAFEs, option pools, and liquidation preferences. It can help you learn how to avoid being diluted further than you anticipate, particularly if your company’s valuation in a subsequent round of funding were to — and here’s hoping it will — meet your highest hopes.

LTSE also provides Captable.io, a free, powerful, equity management tool built for founders, and used by our fellow Techstars founders to keep accurate records, plan financing rounds, and save time and money.

Please share any feedback about what would make this presentation more useful — or topics you’d like to see us cover — by emailing us at pavitra@ltse.com.